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Deeper Dive—The streaming wars will have to wait

After a rare domestic subscriber loss sent Netflix stock into a bit of a selloff this summer, the company was rewarded Wednesday with a huge spike. (Unsplash)

NEW YORK – For months now a narrative has been building: one that pits Netflix against a rising tide of new SVOD giants. But then Netflix had a good third quarter and upended the story.

To be clear, Netflix still came up short of its estimates for subscriber growth. And Apple TV+, Disney+, HBO Max and Peacock haven’t even launched yet. But Netflix did add 6.77 million new paid memberships, which set a third-quarter record for the company. It also massively expanded its margins and came dangerously close to $1 billion in operating income.

After a rare domestic subscriber loss sent Netflix stock into a bit of a selloff this summer, the company was rewarded Wednesday with a huge spike. And thus, the streaming wars were postponed. But as UBS analyst Eric Sheridan put it, it was never really about Netflix becoming the unlikely victim of another big SVODs success.

“For us, the key debate isn't the launch of [Disney+] (the focus on a winner take all vs. the history of media fragmentation has surprised us in terms of debate/sentiment) but will remain the type of scale that [Netflix] will likely achieve (mostly driven by [international]) against the content/[marketing investment],” wrote Sheridan in a research note.

Even though Netflix did admit the big imminent SVOD launches will create some pressure on its subscriber growth, it said they’re not likely to be a big concern for long.

“The launch of these new services will be noisy,” wrote Netflix in a letter to shareholders. “There may be some modest headwind to our near-term growth, and we have tried to factor that into our guidance. In the long-term, though, we expect we’ll continue to grow nicely given the strength of our service and the large market opportunity.”

At the NAB Show New York, even before Netflix’s latest earnings arrived, people were dunking left and right on the very suggestion of a streaming war.

CBS Interactive President Marc DeBevoise said he doesn’t like the term streaming wars. Partly because it sounds like Star Wars but also because it reinforces what he said is a misconception that the streaming market is going to be a zero sum game. He said the average consumer has 3.5 SVOD services now and that it could grow to four or five or maybe 10 in a few years.

Rebecca Paoletti, CEO and co-founder of CakeWorks, said that she had discussed the absurdity of streaming wars with LG’s Matthew Durgin before the panel they did together.

“It’s not a battle,” she said. “There are opportunities for everyone.”

Durgin reinforced that with his belief that consumers will still spend $100 per month on content if they get to choose it. They just don’t want to keep paying for 1,000 channels someone else assembled.

The talk wasn’t just about the big SVODs not going to war, but also about smaller services not being trampled underfoot.

Richard Shirley, senior vice president of distribution business development at A+E Networks, pointed toward the current trend of consolidating massive pools of IP for streaming services but said there’s still room for long-tail content that can super-serve niche crowds.

Matt Smith, executive director of business development and strategy at Comcast Technology Solutions, acknowledged that behemoths like Netflix and Disney can cut through the noise but that it’s “not a world of absolutes…smaller players will be able to co-exist with the big guys.”

At this point, it certainly does seem like there’s plenty of room for big SVODs, little SVODs, AVOD platforms, ad-supported channels, TVODs, aggregators and all other manner of video services to thrive. But as so many in the industry echo the same “there’s enough to go around for everyone” sentiments, the old pay TV bundle endured a few more hits.

This week alone, Comcast moved Turner Classic Movies to a $10 add-on package because not enough people were watching it, and the company announced it will replace Starz with Epix.

If well-known premium channels and beloved niche networks can get the axe, it’s imaginable one day the same could happen to similar streaming services. After all, the same price pressure that’s leading consumers to ditch expensive cable TV packages and providers to trim pricey channels will still be around when consumers are paying $100 or more per month to build their own video bundles out of different apps.

But for now, it looks like Netflix and everyone else still have space to grow.